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					The Fannie Mae/Freddie Mac bailout would be an incredible bargain. - By Daniel Gross - Slate Magazine                                  10/12/08 5:47 PM

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 Arts & Life
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 Style & Shopping
 Travel & Food                    Bargain
 Sports                           THE COST OF RESCUING FANNIE MAE AND
 Slate on NPR                     FREDDIE MAC WILL BE WAY LESS THAN THE
 Video                            AMOUNT THEY HAVE SAVED AMERICAN
 Disable Flyout                   TAXPAYERS.
                                  By Daniel Gross
                                  Posted Monday, July 14, 2008, at 6:25 PM ET
      PRIN T
                                  Read more about Wall Street's ongoing crisis.
      D IS C U S S

      E - M AIL
      RE C O M M E N D                                        On Sunday, Washington
                                                              policymakers announced details of
      N E WS LE TTE RS
                                                              a plan to shore up Fannie Mae and
      PO D C AS TS
                                                              Freddie Mac, the struggling
      RS S
                                                              government-sponsored enterprises
                                                              that are huge players in the
                                                              mortgage market. The proposals—
                                                              a plan for both the Treasury
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                                  But the actions don't amount to a bailout—yet. The
 Dentists are
 Expensive                        announcements simply constituted the final explicit declaration
 I learned the hard way!          of what investors, politicians, and policymakers around the
 Cut out the middle-man           world have long taken as an implicit assumption: that the U.S.
 and you’ll SAVE $$!              government would back the debt of Fannie Mae and Freddie
                                  Mac. Questions have been raised about the potential cost to
                                  taxpayers if the government ultimately does have to help the
 VzW Push to Talk
                                  two companies make good on the debt they've sold to
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 instantly more                   investors. But as it turns out, under almost any circumstances,
 productive. Choose the           the bailout will be a bargain for American taxpayers, because
 only Push to Talk                any cost of it will be overwhelmingly offset by the tangible and
 service that comes...
 www.verizonwireless.c...         quantifiable economic benefits that taxpayers have collectively
                                  received over the years from the market's expectations that
                                  such a bailout would materialize if needed.
 "Teeth Whitening
 The Secrets Dentists             Fannie Mae and Freddie Mac occupy a strange netherworld
 don’t want you to know
                                  between the U.S. government (whose debt can never fail) and
 about Teeth...          the corporate world (where debt occasionally fails). Fannie and
                                                                                                        ALSO IN SLATE
                                  Freddie borrow money in the public markets at rates
                                                                                                              B U SIN E SS & T E C H
 How’s your Credit                somewhere between what the government pays and what a                       Hey, Germany, Time
 Score?                           good corporate borrower would. Over the years, economists                   To Stop Gloating
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 700+ and can save you                                                                                        Crisis
                                  enterprise's advantage—and how much of that advantage it
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 - $0                             passes on to borrowers in the form of lower costs. On its Web             site, Freddie Mac quotes the Office of Management Budget
                                                                                                              A R T S & LIF E
                                  thus: "[M]ortgage rates are 25 – 50 basis points lower                                                                                                             Page 1 of 4
The Fannie Mae/Freddie Mac bailout would be an incredible bargain. - By Daniel Gross - Slate Magazine                                                     10/12/08 5:47 PM

                                                                                                                            A R T S & LIF E
             Buy a link here      thus: "[M]ortgage rates are 25 – 50 basis points lower                                    Wait, Emily Dickinson
                                  because Fannie Mae and Freddie Mac exist in the form and                                  Had a Secret Lover?
                                  size they do." (Twenty-five to 50 basis points is one-quarter
                                  to one-half a point, in layman's terms.) Freddie goes on to
                                  say that "because the secondary mortgage market saves
                                  homebuyers up to one half percent on their mortgage,
                                                                                                                            A R T S & LIF E
                                  borrowers nationwide save an average of nearly $23.5 billion                              Great Kids' Books
                                  annually." That may be overstating the case. Economist                                    About Financial Ruin
                                  Lawrence J. White of New York University's Stern School of
                                  Business says the consensus among economists holds that the
                                  implied guarantee allows Fannie and Freddie to borrow at
                                  rates between 35 and 40 basis points lower than rates
                                                                                                                            H E A LT H & SC IE N C E
                                  available to analogous companies that don't have an implicit                              Major Health Problems
                                  government backing. If Bank X pays 5.35 percent to borrow,                                That Begin in the
                                  Fannie Mae pays only 5. The government-sponsored                                          Womb
                                  enterprises pass on most—but not all—of those savings to
                                  consumers in the form of lower interest rates on mortgages.
                                  Again, White says the consensus is about 25 basis points.
                                  (Studies by Wayne Passmore of the Federal Reserve, seen
                                  here and here, put it lower. This article, which reviews several
                                                                                                                   THE M O S T e - m a ile d | r e a d
                                  other studies, put the savings at only seven basis points.)

                                                                                                         Diagramming Sarah
                                                                                                         Can Palin's sentences stand up to a
                                                                                                         posted Oct 1, 2008 By Kitty Burns Florey

                                                                                                         Barack, Bill, and Me
                                                                                                         The Bill Ayers that Barack Obama and I worked
                                                                                                         with was no "domestic terrorist."
                                                                                                         posted Oct 10, 2008 By David S. Tanenhaus

           M O RE
                                                                                                         Emily Dickinson's Secret Lover!
        C O LU M N S                                                                                     Why the big news is being ignored.
                                                                                                         posted Oct 9, 2008 By Christopher Benfey

   People Who Live in
      Glass Häuser                                                                                       Skategate
     Europeans were                                                                                      Sarah Palin could teach Alberto Gonzales a
    gloating about the                                                                                   thing or two about avoiding political scandal.
    American financial                                                                                   posted Oct 11, 2008 By Dahlia Lithwick
   crisis. Not anymore.
       Daniel Gross               But 25 basis points—one-quarter of one percentage point—               Can Paulson Fire Naughty
   posted Oct. 10, 2008
                                  can add up to significant savings on large amounts of money.           Executives?
                                  At the end of 2007, Fannie and Freddie held or guaranteed
  Subprime Suspects                                                                                      How much control does the Treasury have over
  The right blames the            mortgages worth about $5.2 trillion. (The annual report of             personnel at AIG?
   credit crisis on poor          OFHEO, the regulator of Fannie and Freddie, has great                  posted Oct 8, 2008 By Juliet Lapidos
  minority homeowners.
                                  historical data on the two companies. Information on their
    This is not merely
  offensive, but entirely         balance sheets can be seen in Table 22.) This means that
          wrong.                  borrowers saved about $13 billion in 2007 on interest costs,
      Daniel Gross                thanks to the GSEs. The numbers were lower in previous
    posted Oct. 7, 2008
                                  years. Assuming a 25-basis-point savings, the savings were
                                  $7.5 billion in 2001 and $3.25 billion in 1994. Calculating the
   Is Warren Buffett the
     New J.P. Morgan?             cumulative present-day value of the historic implied guarantee
 In 1907, one man saved           —after all, $3.25 billion in 1994 is worth about $4.75 billion in
      us from financial                                                                                 Today's Headlines
                                  today's dollars—would be a complicated task. But after laying
  collapse. Today it takes
                                  out all sorts of caveats, Lawrence White believes it could add        Historical Archives: The Twenty Top-Most Books In
        Daniel Gross              up to more than $100 billion in current dollars.                      Print At Present
    posted Oct. 6, 2008                                                                                 Sun, 12 Oct 2008 12:00:00 -0400

                                  So, merely by signaling to the markets that it might back the         Historical Archives: The Surgeon General Has
    Wall Street Woes
     Slate's complete             GSEs' debt, the government has, over the past few decades,            Added Snuff To Tobacco Pyramid
 coverage of the financial        helped tens of millions of homeowners save some serious               Sun, 12 Oct 2008 08:00:00 -0400
 crisis. posted Oct. 1, 2008      money. Until this week, the cost of this benefit has been
                                                                                                        Historical Archives: A Puzzle For The Mind
                                  effectively nothing—save for some foregone taxes and the              Sun, 12 Oct 2008 04:00:00 -0400
     How the Bailout Is
    Like a Hedge Fund.            cost of regulating the companies. But if Fannie and Freddie
                                  exhaust the patience of the private sector—the shareholders—          » More from the Onion
 It's massively leveraged.
    It's buying distressed        and can't raise capital to make up for losses on the mortgage
  assets. It's taking equity
                                  portfolio—they would have to turn to the government. How
           stakes …
                                  much would they need?                                                                                                                                Page 2 of 4
The Fannie Mae/Freddie Mac bailout would be an incredible bargain. - By Daniel Gross - Slate Magazine                                                                                        10/12/08 5:47 PM

       stakes …
      Daniel Gross                    much would they need?
   posted Oct. 1, 2008
                                      This is a great unknown. But it's hard to imagine it would                                                   Over the Line
  Search for more
                                      approach a figure close to $100 billion. Fannie Mae and                                                      Harold Ford Jr. | I know what it's
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                                      Freddie Mac didn't make subprime loans, although they do                                                     like to be smeared by your
                                      have some exposure to subprime debt through assets they                                                      opponent.
  Subscribe to the
                                                                                                                                                   : The Positive in Negative Ads
  Moneybox RSS                        purchased. Rather, they make loans to people who make
       feed                           down payments and who buy houses under a certain price                                                         Robinson: A Little Worried About the
                                      (the maximum loan last year was $417,000). As a result, the                                                    Meltdown
 View our complete                                                                                                                                   Khaled Hosseini: Sen. McCain, Am I a
                                      companies avoided funding lots of mortgages in expensive,
 Moneybox archive                                                                                                                                    Pariah?
                                      bubbly markets. In the fourth quarter of 2007, the                                                             Ombudsman: A Puff Piece About the
                                      delinquency rates for mortgages on single-family homes were                                                    Obamas?
                                      0.65 percent for Freddie Mac and 0.98 percent for Fannie Mae.                                                  King: The Anatomy of an Assault
       FEA TU R ED
  A D VER TISER LIN K S                                                                                                                            PLUS » Milbank: The President's Lullaby
                                      Let's assume for the moment that 5 percent of the $5.2
    Book Marriott's                   trillion in mortgages that Fannie Mae and Freddie Mac hold or
   breakfast deal now
                                      insure goes bad, which would represent a massive (and
       with Visa
                                      unlikely) uptick from current numbers. Lawrence White says
    T-Shirts, Custom                  that because of the company's underwriting standards, the                                                    Today's Headlines
     Jerseys, Barack                  losses on those loans would be only about 30 percent. Run the
    Obama T-Shirts                                                                                                                                 Cars: GM-Chrysler Merger Would Be A Lemon
                                      numbers, and the potential losses—i.e., the amount of federal
                                                                                                                                                   Sun, 12 Oct 2008 17:51:58 GMT
    Be Prepared. Fight                funds needed to make bond investors whole assuming the
     Identity Theft!                  GSEs can't raise any more outside capital—would be about                                                     Laramie Resident Reflects On Shepard Anniversary                    $78 billion. If 2 percent of the mortgages the GSEs hold or                                                  Sat, 11 Oct 2008 23:11:55 GMT

                                      insure goes bad—a much more reasonable guess—the                                                             Zakaria: A More Disciplined America
   Introducing The All-
                                      government would have to come up with about $31 billion.                                                     Sat, 11 Oct 2008 18:00:21 GMT
   New 2009 Acura TL
                                      Those are big hypothetical costs for taxpayers. But they would
                                                                                                                                                   » More from Newsweek
                                      still be smaller than the actual benefits taxpayers—or at least
                                      the large majority of taxpayers who are homeowners—have
                                      already received.

                                                                                                                                                   Today's Headlines
                                      BAC K TO TO P
                                                                                                                                                   An Obama-Palin Ticket
                                                                                                                                                   Thu, 9 October 2008 18:16:56 GMT
                                                              PRIN T                   D IS C U S S                E - M AIL
                                                                                                                                                   Love the Player, Hate the GM
                                                                                                                                                   Thu, 9 October 2008 21:10:07 GMT

                                                                                                                                                   Schooling McCain on the Man Code
                                                                                                                                                   Thu, 9 October 2008 20:03:04 GMT
                           D anie l G ro s s is t h e M o ne y b o x c o l u mnis t f o r Sl at e and t h e b u s ine s s c o l u mnis t f o r
                                                                                                                                                   » More from The Root
                           N ew s w eek . Y o u c an e - mail h im at mo ne y b o x@s l at e .c o m . He is t h e au t h o r o f Po p ! Why
                           Bu bbl es Ar e G r eat fo r t he E co no m y .

                           Ph o to g r a p h o f a fo r e c l o s e d h o m e b y J u s ti n Su l l i va n /Ge tty Im a g e s.

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                                                                                                                                 Buy a link here                                                                                                                                                                   Page 3 of 4
The Fannie Mae/Freddie Mac bailout would be an incredible bargain. - By Daniel Gross - Slate Magazine                    10/12/08 5:47 PM

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